The discipline of central banking has changed dramatically in the past 10 years. Central bankers have taken on new responsibilities and in some cases they have relearned old lessons.
In this new podcast series, Central Banking speaks with Yale University’s Andrew Metrick, the first person to hold the Janet Yellen professorship and one of the masterminds of a new course focused on modern central banking, the Yale master’s degree in systemic risk.
In the introductory ‘bonus’ episode, Metrick unpacks the thinking behind the Yale course. In the rest of the series, he tackles six key aspects of post-crisis central banking. Each episode will have a link below when it becomes available, and you can also listen via iTunes or podcast apps. Search for CB On Air.
What new skills does a central banker need post-2008? Do modelling approaches still need reform?
What have we learned from the crisis? Are central bankers now more on top of financial sector risks?
How are new forms of money having an impact on the way central banks work? Does there need to be a deeper rethink of monetary policy?
Is the system safer? What can we do if global agreements come under threat?
What have been some of the most successful macro-prudential innovations? Do central banks now have the tools they need?
If a financial crisis happens tomorrow, are central banks ready? Where might the next crisis come from?
Transcript: Bonus episode
Hello, I’m Dan Hinge, news editor at Central Banking, and this is CB On Air.
The 2008 financial crisis changed the nature of central banking. Recognising the need to adapt to the new world, Yale University has developed a master’s degree in systemic risk.
I’m with professor Andrew Metrick to talk over the new programme.
DH: Perhaps you could tell me a bit about the driving force behind the programme. Where did it come from?
AM: Well, we recognised here at Yale, when we spoke to many central bankers who would visit us for our summer programmes, that there was a pretty big need for a broad-based education now for anybody who wanted to make a career in central banking – a broad-based education that would include a lot of topics in financial stability. Things that earlier, if you’d picked up a degree in economics, maybe a master’s degree in economics or finance, you might not have gotten.
So we tried to think how could we summarise and survey the things that a modern central banker would need to know? And put that in a course, so that somebody coming from a central bank who might be trained traditionally in monetary theory would be able to add to their skillset and be viable for the next few decades of managing on the financial stability side.
We introduced two years ago a master’s degree programme. It’s a one-year master’s degree programme, trying to get as much as possible into that, so people could come from their central banks, stay with us for a year and then go back, really, to specialise on the financial stability side of the operation.
DH: So what are some of the key features of the course?
AM: What we try to do is survey what we think the key parts are for financial stability and how they fit together with traditional central banking. So in each semester there are four required courses, and those courses across the full year make up a sequence – there are four different sequences that people take.
One of those sequences would be at home in any central banking education programme and that is a course on monetary theory in the fall, and then in the spring on central bank operations. That is taught by professor Bill English, who was a senior official at the Federal Reserve for many years, including a five-year stint as head of the division of monetary analysis.
So that’s one chunk of it. Another chunk of it is specifically focused on financial stability and this is the unique part that you won’t find offered in other programmes.
The first semester is on comparative financial stability regulation around the world – so what kind of things have been introduced by countries and how does it look for dealing with systemic institutions, for dealing with emergency liquidity, for things like guarantees, etc. And then, in the second semester, the focus is on macro-prudential tools – actually what do you do, how do you get a countercyclical buffer to work? How do you do stress tests? How do you think about building a heat map, for example.
The third part is where we try to tie finance with what happens in the real economy, first by thinking through what happens when the financial system breaks down and, second, going in detail through the types of instruments you see in a 21st century modern financial system. In the fall, I teach a class on the global financial crisis; I teach it alongside Tim Geithner, which is really fantastic for both me and the students. We learn an awful lot [by] looking at what happened in the crisis, what went into the build-up that created the situation that led us to the crisis, and then what sort of things were necessary to do to fight it.
In the spring, they take a course on capital markets, taught by Gary Gorton, and Gary’s view about capital markets is very very, fixed-income, safe-asset focused. He tries to help people understand what it is the financial system does when it manufactures safe assets through the system; things like securitisation and repo, and asset-backed commercial paper.
The fourth required thing we do for the full year is a year-long colloquium, where we have a combination of guest speakers coming in to speak with the students, and also the students engage in a collaborative writing project. So, in the fall semester this year, they are presenting financial stability reports from various countries around the world. And, in the spring, they will be collectively writing one as a team to try to summarise some of the themes we see in financial stability reports across countries.
One of the main goals of the programme is that our students, who are coming from all over the world, all develop the skills such that, as soon as they went back – if they so desired and their banks wanted to send them – they could be sent somewhere like the IMF or BIS for a year or two. They would have the skills to both understand the global financial stability system, and to write – cogently in English – memos [that] could go out both to senior staff and to the broader public on those topics. We’re very focused on building those skills.
In addition to these courses there are also opportunities for electives, and in fact we require that the students do at least one elective in finance or economics, and another elective in statistics.
DH: Right, ok. And who exactly is this pitched at? Is it both central bankers and regulators, and what kind of stage of career would it be?
AM: We’re pitching it at people who want to make a career on the financial stability side of central banks; a side that has grown and was not that big or existent at all 10 years ago at a lot of central banks, but it is now growing. And there is a lot of demand for people to do it and to have these skills.
So it’s mostly early career people and it’s a master’s degree programme. At many central banks this is either a terminal degree [that] you need to move up in the organisation, or an important stepping stone towards an additional degree if you want to reach the highest levels. In either case, we are targeting early career central bankers, typically with something like about five years’ experience plus or minus five years.
They may be coming either directly from a financial stability group or from a supervisory function. We do have a lot of people come in who are bank auditors or bank supervisors, looking to either get into the supervision of the largest, most systemically important banks, or to move over to a financial stability group.
DH: Lastly, what kind of new skills would you expect a central banker or supervisor to come away with from this course?
AM: I think when you come out of this course you will have a deep understanding of the connections between traditional central bank activities on the monetary side and what we’re now calling financial stability policy, which includes things like macro-prudential tools, the management, the supervision, and perhaps the liquidation and resolution of the largest, most systemically important institutions. And connections; linkages across different parts of the financial system.
We would expect people to have both an understanding of this, but also knowledge of the tools as they are currently being used. Finally, as I said earlier, I think knowing how to write about all these things, in the style you need at a major central bank or multilateral institution, is also something I hope we’re developing in our students.
DH: Thanks very much.